How did patronage networks play a role as business intermediaries in Jatropha projects?

Quote: “A patronage network of politicians, government officials and businessmen had recruited farmers by collecting copies of their land titles or identity cards to make the company’s access to land and labor appear secure.”

When companies aim at establishing large-scale production of an agricultural crop, they need access to land and labor. The company’s management needs the services of intermediariesto get in touch with local landowners, farmers and laborers. The nature of the company’s relations with these intermediaries depends on the business model the company uses. One such form of relations uses the existing system of patronage, which can provide access to resources when a patron acts as a gatekeeper between outsiders and his clients. A patron can either constrain or enable the access of external parties to the benefits of resources under his/her control (1).

In Indonesia, as indicated elsewhere in this E-publication, the patronage system is very central in the control of access to the state’s economic and financial resources. Under Indonesia’s decentralized system, the political class at the regional level holds control over the resources, which they share with allies, relatives and clients. With this almost absolute measure of control, many development projects had to establish coalitions with members of the political class in order to gain access to resources. This is the strategy that has been used in the largest jatropha scheme in South Sulawesi. This article first briefly explains the general model of patronage in support of plantation agriculture as it has been described and analyzed in the literature. Second, it addresses the issue of why relying on patronage is not a logical business strategy for accessing land in the context of South Sulawesi, and how that is confirmed by the case of a cassava company in the same area. Finally, it is explained through the jatropha case why the company involved diverted from that general pattern and chose to work through a patronage network.

The company JOP’s jatropha nursery in South Sulawesi.Photo: PT JOP, 2008

Patronage, or clientelism, is characterized by an unequal relationship between a patron and a number of clients based on an asymmetric exchange of services, where the patron supplies the clients with assistance, including monetary benefits and protection, in return for their loyalty and services (2). The role of patron as gatekeeper or intermediary is not new in business, especially in agribusiness. Baumann (3), for example, notes that in contract farming practice, informal ties – constructed relations of trust, patronage and traditional reciprocities – have been used by companies to enforce contracts and ensure grower loyalty, especially when legal and property rights are difficult to control. Patronage is especially important for access to land and labor where land rights are communal and members of communities strongly depend on each other for a variety of reciprocal services. The strong influence and control of patrons over their clients and resources has been the main reason for outsiders to connect with them to further their specific interests and goals, especially with regard to ensuring access to the targeted resources. Companies identify the “local kings” and try coopting them by integrating them in the supply chain, either in their role as representatives of their farmer-clients or as intermediate traders. According to this view, patronage is effective for both mobilizing people and controlling resources. That was the hypothesis with which I tried to understand the jatropha project discussed below, but it appeared to be an extraordinary case of both unsuccessful patronage and failure of jatropha oil production. The case highlights modern and external sources of power within the patronage network rather than traditional, locally based sources, like position in the kinship system or the hereditary status of landed elites.

In South Sulawesi, where the research was conducted, the patronage system has very strong roots in the social system, where it is characterized by acts of reciprocity resembling positive adat and religious values (2). At the present time, the pattern of the patron-client system is becoming more diverse. Unlike the traditional systems, the contemporary format is increasingly characterized by less feudal forms, which are more impersonal, rational, businesslike, purely financial, less dependent and non-permanent – something that, as observed by scholars such as James Scott (4), has become a common pattern in the erosion of patron-client bonds. This new form is triggered by the emergence of new elites from the middle class, who are educated but have yet to find steady employment (5), and those with backing from the authorities, who then find ways to establish their influence and act as intermediaries between outside interests and their claimed constituencies. Examples of this include political brokers between politicians and their voters, and NGOs delivering projects with their beneficiaries. In principle, these elites do not have a strong traditional influence over their clients, since they do not perform the traditional patron-client services of personal protection and material assistance, and do not follow the positive values of adat and religion. This kind of relationship is merely based on a direct exchange for concrete rewards. In the cases where these elites are backed by the authorities, their influence over their clients is more based on fear (threats) than respect and loyalty. They are often not hesitant to exploit or to show their unfaithful acts vulgarly in front of their clients, causing a lack of respect and trust, thus affecting the loyalty of the clients.

In order to understand such a “modern” patronage network, we need to know what the content of these reciprocal relationships is, what kind of services and valuables are being exchanged, and what makes the system worthwhile for its participants. The next case, concerning cassava cultivation, describes what could logically be expected in the context of individual commercial farming.

PT EN3 Green Energy is a South Korean cassava-processing industry established in South Sulawesi since 2007. PT EN3 processes fresh cassava into cassava chips and cassava flour for the export market in South Korea and Japan, as basic materials for food and textiles, and for the chemical and bioethanol industries. This cassava company used three strategies for supplying its raw materials: first, production in its own company-managed plantations; second, buying cassava through a contract farming system; and third, purchasing in the open market. It is noted that since the beginning of its operation, the company has linked itself with many locally influential figures as a strategy for achieving support for its activities. In its outgrower strategy, PT EN3 relied very much on the role of the local elites to assist them in accessing land and mobilizing farmers. Yet, this strategy was proven to be ineffective. My informant inside the company told me that many of the elite intermediaries appropriated the budget allocated for the mobilization of farmers, and in fact had little influence in mobilizing farmers for the company. The company thus shifted to the open market system, purchasing from farmers through the intermediation of the village collectors. A good market price for cassava provided sufficient motivation for farmers to sell their produce to the village collectors. As a reciprocal service, the company used the collectors to introduce new varieties and post-harvest management techniques to the farmers, who responded very positively. This case provides the backdrop for seeing how the following case about jatropha completely diverts from the usual pattern.

The jatropha company PT JOP was established in 2007 as part of a national conglomerate. Its owner, Aburizal Bakrie, was a cabinet member at that time and is currently the national chairman of the Golkar Party. A senior Golkar Party politician from South Sulawesi, Nurdin Halid, was the director of PT JOP, and the company’s management included many of his family members. In that way the company could use both the Golkar Party network and the extensive Halid family network, in order to draw on contacts from high-ranking politicians, down to farmers at the village level (who could be recruited to its outgrower scheme). The company established extensive nursery plots in 15 districts in South Sulawesi. Approximately 8,000 farmers were recruited, with a total coverage of 17,040 hectares. The company provided the farmers with various cash and in-kind incentives, which were officially termed as loans under the outgrower scheme. Though these figures for land coverage and outgrower participation are impressive, the field investigation indicated that they were only based on the total area of land certificate photocopies collected by the company. Meanwhile, in reality the total planted area was far less – only approximately 40% of the figures claimed. Many farmers joined the scheme by submitting the photocopies of their land certificates to obtain a share of the “incentives” without any intention to grow jatropha.

A meeting at PT JOP’s district office attended by the company district staff, local community organizers and a local cooperative consultant from Hasanuddin University. Photo: PT JOP, 2007.

As a result, the cultivation never got off the ground, in spite of the project’s total investment of approximately 100 billion rupiah. In 2009, PT JOP terminated its operation; the company was finally liquidated in 2011. The publicly reported reason for ending the project was the absence of clear market prospects for jatropha; however, the internally audit findings suggest massive corruption and mismanagement of the outgrower scheme as the reason for termination.

It is concluded from the analysis of this case that the selected patronage network failed to ensure access to land and the participation of outgrowers in this jatropha project. During interviews some outgrowers told me that right from the beginning they had not been optimistic about jatropha. Aside from the fact that commercial jatropha cultivation was new to them, they were not fully convinced because its introduction was very similar to that of previous unsustainable projects in their locations, especially given the prominent role of the same elites in the promotion of both jatropha and previous unsuccessful projects. Another outgrower regarded his patron as an outsider who was only acting as an intermediary between PT JOP and the outgrowers for a commission and was not trustworthy. Against this background, their participation was certainly not due to loyalty towards the patrons, but rather, based on a desire to pursue benefits from the incentives offered; they perceived no moral obligation to the patrons, whom they believed also profited from their roles. On the other hand, a different conclusion was drawn in the analysis of the interactions between the farmers and the village collectors in the case of cassava. The farmers see the village collectors not merely as intermediaries of the cassava company, but also as resembling the patrons in the traditional patron-client system, where trust and a reciprocal relationship were the main foundation. It is very common for village collectors to not only buy products from farmers, but also become sources of credit, either for productive activities or merely for daily subsistence needs, thus creating a social bond. This bond allows them to act as the farmers’ patrons, gaining loyalty and trust in return for the assistance they provide.

This analysis of intermediary actors shows how human factors in the intermediary role within the patron-client relationship are very significant to success as well as failure in the case studies. It underlines that the perceptions of farmers towards the personal qualities of intermediary actors determine their responses and attitudes towards the opportunities introduced. The intermediary analysis is important in explaining why certain investments fail or succeed, not only because it can serve as a complement to the conventional supply chain analysis, but also because it reveals many other aspects that are often neglected in the conventional analysis, especially aspects related to local socio, culture and politics. Finally, this article shows that while the patronage networks can help to access resources, their reliability still needs to be tested.

Appendix:

The JOP outgrower scheme:

- The planting ratio per hectare was 2,500 trees, and this number will be used as a basis for calculating the number of planting and maintenance incentives.

- The outgrowers will receive cash incentives for every jatropha tree they plant – Rp. 200 for planting and Rp. 300 for the first year of maintenance – plus fertilizers and herbicides incentives.

- The contract establishes that the loan given will be repaid in the form of jatropha seed production for five years, while the contract will last for a period of 25 years.